The Russian stock market began operation in 1994, and
sufficient volume was observed on the market for a stock index to be created
in June of that year. An examination of the value of that stock index
indicates that from 1994 through early 1996 the Russian market was an unimpressive
location for investment.

However in 1996 the value of the Russian stock market
began to rise, and it rose beautifully through July 1997. Russia
was one of the celebrated "emerging markets", and during this period was
the best-performing of the lot.

July 1997 was not a significant month in Russia, but it
was a catastrophic month in Thailand. The value of the currency collapsed,
the stock market lost value, and foreign investors became wary of retaining
investments in that country. As the concern deepened, it also spread:
Indonesia suffered through a similar crisis in October 1997. While
the Russian stock market recovered from the July shock, the October shock
was the beginning of a long downward slide. The contagion from other
countries led to a massive infection for Russia.

The long downward slide in the stock market represented
a continuing outflow of investment funds from Russian stocks. These
funds went overseas, with the central bank obligingly providing US dollars
for Russian rubles at the nearly constant exchange rate. It's fascinating
that the fall in the stock market index ended at the time that the ruble
dropped in value -- but that is probably due to the controls placed by
the government on conversion of rubles to US dollars.

The big losers -- outside Russia -- were the investors
in "hedge funds". These investors had chosen to buy massive volumes
of Russian bonds on the margin. When Russia placed its controls on
conversion of rubles to US dollars, the hedge funds were unable to get
out the value of their investments. This led to an unravelling of
the entire investment position.

Inside Russia the losers were concentrated in Moscow and
the upper class. Although ownership of corporations was originally
distributed to citizens, by this time ownership has become concentrated
in a small circle of hands. However, even small amounts invested
in the stock market had large consequences for the small investor, as the
value of that investment may have been largely wiped out.